Singletary: 5 things increase risk of being audited

If you report any business or self-employment income on a Schedule C, you are more likely to be audited than a salaried individual, Freedman said. “Why is that? Because a salaried person generally has few if any expenses to deduct against her income, whereas a self-employed individual can claim a great many expenses deducted against his gross income.”

• Failing to report all your income. “While audits in general have declined over time, additional reporting by various areas of the financial world have allowed for more matching of documents,” points out Janet Lee Krochman, a CPA from Costa Mesa, Calif.

For example, the IRS has the ability to compare what your ex-spouse paid (and deducted) in alimony to what you reported as income from alimony, said CPA Andrew Porter.

• Forgetting that others are sending the IRS information about your tax situation. The IRS has several different types of audits. The most basic is called “automated underreporter,” or “AUR.” This type of audit is done completely by computer, according to CPA Mary Kay Foss. The IRS computer compares the 1099s (freelance income), W-2s (wages) and 1098s (mortgage interest) it receives with the returns. “Anyone with many sources of income that are reported on those tax forms is a likely target,” Foss said.

She added that if you receive an IRS form CP2000 letter generated by an AUR, respond right away because it could be an error.

“Often, taxpayers are afraid to open envelopes from the IRS because of their fear, and as a result, sometimes deadlines are missed or taxes are assessed unnecessarily,” Foss said. “Hopefully knowing that audits are down, taxpayers will be less reluctant to open the envelopes.”

Correspondence audits generally target taxpayers who claim large mortgage-interest deductions or charitable contributions, Foss said.

If you’re a taxpayer with a pricey home, be sure you report the correct amount of mortgage interest. “The IRS has been receiving mortgage loan balances in an effort to ensure that taxpayers are properly reporting,” said Gregg R. Wind, a CPA in Los Angeles.

• Showing a pattern of losses for your small business. In such cases, the IRS wants to make sure that yours is a viable business and not an excuse to deduct expenses in connection with a hobby, Foss said.

• Claiming deductions that are especially out of line for people with similar income. The IRS looks for cheaters who inflate deductions, such as the value of goods donated to charities, the amount of unreimbursed business expenses, cash contributions and medical expenses, Foss said.

Don’t risk an audit. My motto is: Never mess with the IRS.

Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.